Revised guide to Part XV

The SFC has updated its 83-page guide to situations where a notice relating to interests in listed shares must be filed under Part XV of the Securities and Futures Ordinance. The revision was prompted by various changes in Hong Kong's statutory framework since the version published in August 2003, including the commencement of the new Companies Ordinance in March of this year, and the need to address comments and queries raised on the 2003 version.

The following revisions are of particular interest to fund managers:

  • "Interest" in shares: The SFC expands on the examples of what are deemed to be notifiable interests in shares: a person is interested in shares if they "are entitled to exercise rights attaching to the shares or control their exercise (e.g. voting rights) or the right to sell the shares themselves. Hence if you are a fund manager you would normally have an interest in the shares in the fund(s) that you manage." The guide therefore clarifies that if an entity's right in respect of the shares is the authority to deal with (to sell, in particular) the shares, it is considered to have an interest in the shares, even though it may not have the power to exercise all rights attaching to the shares.
  • Aggregation exemption: This exemption removes the obligation on a holding company to aggregate interests in shares held by controlled corporations that hold their interest in their capacity as investment manager, trustee or custodian if they manage their interests independently. The SFC has revised the guide by adding, "The exemption does not exempt the investment manager, trustee or custodian from his duty to disclose his interests in the shares that he manages or holds. It also only applies to interests held by separate corporations. The exemption is not available to separate businesses carried on in one corporation even if there are Chinese walls between the various divisions." Also, "the exemption does not apply to a trustee or custodian unless its "principal" business is holding shares on behalf of customers - in practice investment managers" and "the exemption is not available if there is any dialogue with the holding company concerning the shares or...if the holding company sets the parameters within which the investment manager must operate." In practice therefore it is unlikely that many groups will be able to rely on the exemption.
  • Authorised fund exemption: This disregards interests of an investor, custodian or trustee of an authorised or other qualifying fund in shares held by that fund. However, the interest of the manager of the fund is not disregarded and must be disclosed. The SFC has added to the outline that if a unit trust does not qualify for the exemption, a unit holder will have to disclose an interest in all shares in which the unit trust is interested. In practice, investors may not be aware of the composition of the portfolio and therefore are likely to be unaware that they have a notifiable interest.

The SFC's Outline of Part XV is available on the SFC website: http://en-rules.sfc.hk/net_file_store/new_rulebooks/p/a/PartXVOutlineFair2252014_2.pdf

Consultation on exemptions

On 18 June 2014, the SFC issued a one-month consultation on proposals to amend the Guidelines for the Exemption of Listed Corporations from Part XV of the Securities and Futures Ordinance. The SFC proposes to add two categories for exemption to cover participants of the Stock Exchange and participants of a recognised clearing house who are themselves clearing houses. The SFC has stated that the changes are necessary to provide a level playing field for market participants involved in Shanghai-Hong Kong Stock Connect.

Enforcement action

The SFC announced on 22 May 2014 that it had reprimanded a global bank and fined it HK$1.6 million for regulatory breaches and internal control failings relating to the disclosure of interests regime. The SFC found that the bank had failed to implement adequate internal controls to ensure its positions in Hong Kong listed companies were properly monitored and disclosed.